Advanced wealth management tools

Menu

Category Archives: Country report

This year is not going to be easy for Europe. Apart from the next negotiation between the European Union and Great Britain for the Brexit, the continent will celebrate three main elections: Germany, Netherlands and France. These three countries are founders of the EU in the 50’s and there is a reaction against Europe in all of them.

The current president, the socialist François Hollande, announced last year his intention to not to repeat as a candidate for a new term. His presidency dealt with several difficulties both in economics and in politics, specially related to the terrorist attacks (in Paris and Nice). The polls were very negative, as he was rejected for a huge number of voters. Hollande retreat has opened new chances for other candidates. The best positioned was the right-wing candidate François Fillon, but the corruption scandals linked to his family have reduced his chances. In this case, the second best positioned candidate is the far right politician Marine Le Pen.

Marine Le Pen promises to abandon de EU (also known as Frexit) if she win the election in next April-May. Her popularity and the scandals around Fillon have worried the markets. What if she wins? What effects would it have? If we look at the chart of the evolution of the French benchmark index CAC40, the trend was bearish when the Fillon scandal popped up. It is also interesting the parallelism amongst the British, the German and the French markets.

How can we understand this chart? Well, this correlation also means that all three economies have deep boundaries. It is not so easy to change such narrow financial and economic links just with a referendum or a decision of abandon the EU.

In any case, the French stock exchange benefits from the general bullish trend, as we can also perceive in this chart:

If we consider the CAC40 best performers, there are several industrial and banking companies, as the T-Advisor list shows:

So, France is still a powerful economy with several competitive banks and industries and the markets have strong trend boundaries with Germany and Britain. It is possible a surprise, but it is difficult to think that this structure will change even in the middle term. In any case, a victory of Marine Le Pen would have very relevant consequences for the evolution of the European united economy.

Mexico is an example of a developing country that evolved into an industrial nation amongst the 15 largest in the world in a short period. This is the same country that suffered the bond crisis in the 1980s and that signed the NAFTA with a great positive effect for its economic development. This development has also effects in their financial markets, that boomed with a modernisation after the liberalisation of the sector and the investment of foreign entities.

The line was very positive in the global trend, as it registered a bullish bias the main part of the year. However, there was a break… after the second Tuesday in November. Donald Trump won the election and the promises of tightening the relationship with the southern neighbour shocked the Latam markets and, specially, the Mexican one. The line is clear in the T-Advisor trend evolution chart:

The IPC, the Mexican benchmark, scaled a 30% in the last five years, but this positive trend changed dramatically at the beginning of the month. If we look at the chart, the drop is clear and the change in all technical analysis references is relevant.

Compared with other Latam stock exchanges, Mexico didn’t recover from the Trump shock:

The question is: what is going to happen after this shock? Trump has relaxed somehow his strong comments about the relationship with Mexico, but nobody knows his real intentions when he takes office in January. Will he order the building of the wall in the Mexican border? Will he abandon the NAFTA? Will he control the Mexican immigration? All these decisions would have strong negative effects in the economy of Mexico and they would also shock the financial markets. Our bootstrapping tool reveals that there are 25% possibilities of a negative return of the IPC in the next two years. However, there are 40% probability of positive returns between 2% and 45%.

This analysis is based on the historical evolution and considers that past performances do not guarantee future returns. In any case, these results can also be altered by sudden political decisions. Many analysts consider that 2017 will be a volatile year linked to political instability. We will soon discover how it will affect to Mexico.

Japan is the third largest world economy. It is one of the largest foreign investor and saver (over the GDP), its trading balance has a huge positive result and their GDP per capita is amongst the richest countries. However, it seems that no policy can bring the country out from the stagnation. The GDP growth is weak since the 90s, when the financial bubble exploded in the Empire of the Rising Sun.

This is the real economy, but what about the finances? The figures are not very nice. The T-Advisor trend evolution chart for Japan shows that the line is very bearish the whole year 2016. In our trend index, Japan is the second-to-last country.

The Nikkei 225, the Japanese benchmark, has also a negative YTD performance, with an erratic trend.

Compared with other neighbours in Asia, Japan is one of the weakest markets only over Shanghai.

But what can we expect from the future in Japan? Our bootstrapping analysis provides a result in which we can perceive a great probability of high volatility. The range between the best and worst result is very wide and the expected performance is low, around a 26% in 10 years.

The cumulative returns distribution points out that there are a 50% of probabilities that the Nikkei obtains negative results in the next five years.

To sum up, T-Advisor data shows that the market evolution in Japan has been very bearish this year. Only a 30% of the Nikkei stocks are performing positively. The future seems to be also not stimulating, as the probabilistic bootstrapping analysis detects higher chances of negative returns for the next five years.

Why is the Spanish stock exchange one of the weakest when the economy is showing one of the highest growths in the European Union? If we see the evolution of the benchmark Ibex 35, we will notice a clear change since the beginning of 2015.

There was a continuous growth since the turmoil in 2012, when many investors bet for a bankruptcy of the fourth largest EU economy. This situation would have been very risky for the whole EU and the solution came finally with a banking bailout of 40,000 million euros.

Spain was very dependent economically from tourism and building. The crash of the building sector and the global crisis that affected the tourist sector were painful for both growth and employment. The recession took the unemployment rate over 24%. What is the current situation? GDP growth around 3.2% in 2015 and unemployment around 20%, but while the tourist sector is again flourishing (partly, because of the political crisis in the south bank of the Mediterranean Sea), the building sector disappeared and the country didn’t move to any alternative economic sector.

The current decrease begun in January 2015, when the business and consumer confidences fell and the stock exchange went down. Behind these trends, there were two factors: the possible political instability due to the appearance of new parties (particularly, the populist left-wing Podemos, which became very strong in the surveys) and the economic unbalances in the country (debt near 100% of the GDP, high budget deficit, weakening of the Social Security, trade deficit).

The failure of the politicians to create a government after the election on last December didn’t help to take decisions to reverse a possible stop in the economic improvement. The repetition of the election in June resulted similar, because the scenario is not clearer. The weak victory of the right-wing Partido Popular seems to be the beginning of a period of long negotiations to pass bills and budgets.

Our global trend chart of Spain shows the evolution of the last 12 months. It is easy to perceive that the Spanish market had low opportunities to invest. The Brexit also operate negatively.

What can investors expect for the next months? It depends on the speed to compose a new government and the decisions that it takes. If the decisions agree what the markets expect (budgetary control, spending cuts), the exchange will possibly experience a relief and more opportunities will surge to invest.

The American economy has shown how an open economy can perform the best and the worst. In the years of the beginning of the crisis, there was a huge drop in all indicators. The GDP fell an 8% in a quarter in 2009, but at the end of the same year, it grew around 4%. However, the evolution shows a great instability and the forecast are also similar, with a perspective of 2-3% GDP growth for this and next year.

The past market turmoil was also dangerous for investors. Under these circumstances, the Federal Reserve chose a wait-and-see strategy. Finally, in its last meeting, the institution pointed out two rate hikes instead of four, as it mentioned in December. Investments and exports remain soft and a rate hike could make dollar more expensive, which would not be positive for future developments.

These uncertainties happen in a presidential election year. Caucuses and primary elections show the following stage: Democrats fight is between the moderate Hillary Clinton and the liberal (in an American meaning, which in Europe would be social-democrat) Sanders; on the other side, Republicans are divided between the millionaire Donald Trump and the senator Ted Cruz. Clinton and Trump, respectively, have the advantage. The difference is that the Republican Party does not support Trump. Let’s see the evolution of this situation, even more when The Economist listed a possible Trump victory as one of the 10 main global risks.

What is happening in the American markets? If we take into account the S&P 500 as one of the main references, there was a steady grow till last year, when market uncertainties were back with the Chinese crisis and how it could affect US, apart from the drop of the oil price.

T-Advisor global trend evolution also shows this weakness in the last year:

The investing landscape is not clear, but several experts are optimistic about a positive evolution of S&P this year, with a closing better than in the beginning of the year. For instance, Oppenheimer is the most optimistic and bets that the reference index will close 2016 around 2,300 points.

In the case of the Dow Jones, these are the companies with the best performance in the last year:

On the contrary, these are the worst:

It is notorious how technology is not a sure bet, as Microsoft is on the top, but IBM is amongst the worst-performance companies, just to mention two very well-known brands.

To sum up, politics will influence this year in America, but the economic machine works very independent from them. The Fed actions, the evolution of the oil price and the dollar, as the Asian evolution will have more effects surely than the possible Trump-Clinton election.

The Chinese economy is living an unstable situation after decades of continuous strong growth, with some years over 10%. Suddenly, there was an earthquake in August. Since then, the Chinese economy slowed its momentum depending on the world. This time all moved at the Chinese speed. The unexpected decision of the People’s Bank of China of devaluating the yuan three times in August was a shock in the world markets, as in the developed ones as in the emerging ones.

The consequences were so strong, as we already explained in a former post, that the US Federal Reserve delayed its decision of hiking the interest rates due to the financial instability. What was at the beginning the end of the Chinese stock exchange bubble, it is now the start of a possible economic crisis: several figures are warning about the evolution of the second largest world economy. For instance, exports and imports go down, the inflation moderates and industrial prices slow down, the World Bank prospects for the next years speak about a deceleration (around 7% of GDP growth, when the figures were over 9%-10% in the last decade). As The Economist comments, China is a giant in trade and direct investment, but in finances and financial markets is still weak. There is still a long pace till China will play a stronger role to substitute US as the first player. The immaturity of its financial markets is clearly showed in this chart:

This is the evolution of the Shanghai composite in the last 5 years. The evolution was weak between 2011 and 2013 linked to the global crisis, but suddenly a bubble was created this year and exploded violently. Chinese authorities reacted late and could not control the hard effects. The YTD gains around 40% till August are now around 1.8% (it was negative till the last week). The volatility is very high (38%) and trend is very bearish (-1.87%), as T-Advisor models show. However, investors who entered this market in October last year have registered 40% benefits.

What are the results of ETF linked to China? T-Advisor database show global negative results YTD, but most of them are improving its results in the last month:

And the final question is: what will it happen in China? We have models, figures and charts, but no crystal ball, but we can say that it will depend on the evolution of the economy. It is still very linked to financial markets and the decisions of the government. In any case, let’s say welcome to China as very influential player in the world markets.

United Kingdom has opened widely its economy since the beginning of the conservative governments in the 80s to become a service and financial country. Canary Wharf shows daily the strength of the financial services and also the crossroads in which the country lives its relationship with the European Union. Banks prefer to stay, but some part of the population does not find the advantages of being there. That’s why Prime Minister David Cameron promised to organize a referendum about this subject.

The political development has been surprising in the recent years: the first coalition government since the WWII, the creation of a far right party (UKIP) with relevant support in an always politically not radical country, the Scottish referendum about its independence from the Kingdom. Now, tories obtained recently the majority to govern alone, the UKIP lost quite a lot support and Scottish nationalists have seen how their wish to be independent disappeared with their surrender in the referendum, although they keep the strength as a party in Scotland.

New Cameron’s cabinet will pass a budget with cuts on the spending side, aligned with the traditional conservative policy. UK emerged strongly from the economic crisis: there has been a hard correction in the housing market, the unemployment is very low (around 5%) and the economic outlook for this and next year proposes a GDP growth higher than 2%. Interest rates will remain low, as the Bank of England promoted exceptional monetary policies as other central banks in the world. A rate hike is only probable from 2017.

What was the stock market evolution in the last five years? Volatility was high, but the evolution was very positive between May 2012 and May 2013. Then the FTSE 100, the main index, has moved between the 6.500 and 7.000 points.

If we consider the evolution of the returns since 2010, the T-Advisor chart is as follows:

What are the companies with higher 1-year returns in the London Stock Exchange? This is the selection of the ones with returns over 100%. All are related to the services sector: tourism, replacement vehicles, gifts, pharma, distribution and restaurants.

On the other side, the main losers are mainly energy and industrial companies. The companies with 1-year loses over 70% are an investment company, a pub chain, a mobile banking service and three companies linked to energy and mining:

UK is a country with a strong development in financial economy and that’s why there are several investment opportunities in the stock exchange. T-Advisor has a steady model portfolios with British assets rebalanced every second month. The portfolio has always had strong figures, as we show below:

UK is a country with lots of opportunities for investors. They have a developed financial branch and markets and the economic environment is positive for this business. The only shadow is the evolution of the relationship with the EU, as it is its main market. A “Brexit” is not very probable, but it can bring uncertainties in the next months… and uncertainties are not very welcome for money.

Many eyes are on India, after Narendra Modi was elected as new Prime Minister last year. His reformist agenda interested the investors’ community, as India is still a country with several barriers for an open market. However, only the effect of expectations about Modi’s reforms pushed the stock market, as BlackRock’s Investment Chief Russ Koesterich commented.

It is expected that the GDP in the fiscal year 2014/2015 (till March) has grown around 7.4%. However, there is a current slowdown related to the traditional country structure. Reforms are not easy in such a big country with strong social structures. But Modi has generated optimism to make business easier and attract foreign investment. He also plan strong investments in infrastructures to promote the economy. Oil prices have helped control the prices, traditionally rampant, and the Reserve Bank of India reduced in March the interest rate to 7.5%, with possible new cuts if fiscal policies are under control.

What about the stock exchange? Sensex Index in Bombay shows that there is currently a correction after the peaks in the first quarter of 2015. The former year registered a steady line upwards favoured by Modi’s reformist programme.

What are the winners and losers in Bombay Stock Exchange? Top performers are related to car industry (Bharat Forge and Ashok Leyland), pharma (Ranbaxy Labs and Lupin) and chemicals (United Phosphorus). These are the figures in T-Advisor:

On the other hand, worst performers are related to infrastructure (Jaiprakash and GMR), tourism (Indian Hotels), education (Educomp Solutions) and industry (Jindal Steel and Power). These are the figures in T-Advisor:

India has still several handicaps, but with a Chinese economy suffering a slowdown, many investors pay attention to the Indian economy, as they perceive this country as the promising emerging amongst the famous BRICS group.

Chile is one of the most stable and developed economies in Latin America. In these last years of the Great Depression, the country increases its GDP with a very good strength. However, the economy suffered a drop in their growth in 2014. Chile is very dependent from copper exports, as it is the largest world producer. Copper exports sum up to 60% of the whole figure. Last year, the country had to deal with two negative impacts: the hard fall of the copper price and the declining demand from China, the main consumer.

However, OECD outlook and the own country figures are more positive for 2015. Political and economic stability are the main values for this country in a region with regular financial earthquakes. In the stock exchange, the main index IPSA had a better development after the minimum last February. Last weeks, the reference index fell due to the current world financial markets instability. Generally speaking, the trend is still a bit weak, but the index closed 2014 with black figures.

What are the winners and the losers in the IPSA main index in Chile Stock Exchange? The top is composed by a very varied group: two energy providers (Colbun and Edelnor), a pharma (CFR), a paper producer (Empresas CMPC) and a wine producer (Viña Concha Toro).

On the other hand, the main loser is a mining company (CAP), reflecting the branch situation. Other big losers are a building group (Besalco), a transport company (Cía. Sudamericana), a industrial producer (Embotelladora Andina) and a retail (Ripley).

Germany is in the heart of Europe and is also somehow a heart for the European economy. The Great Recession experienced since 2007 affected deeply the European Union. In the middle of the discussions amongst the EU partners, Germany has imposed its strength with austerity to control public budgets. But today the receipt shows to be not necessary the best, as some experts speaks about a third recession in Europe. The warning comes from the weak figures in Germany.

The main European economy is very well monitored: there are several indexes about business or consumers climate. The most famous are IFO and GfK. Let’s see the business climate: there has been a worsening this year.

A cough in Germany means an illness in the rest of the European countries. Germany has a strong industry and export branch. Chemicals, carmakers, electronics… are some of the main sectors. What is happening in the German stock exchange while the country is living these negative signs?: T-Advisor global trends tool shows that only a 9% of the listed companies are bullish this week.

DAX index, the German selective index in the stock exchange, shows that the main winners this year are chemicals (Fresenius, Merck and Bayer). Financials has only a representative (Commerzbank) as the branch does not experience its best year.

On the opposite, the weakest equities are financials (Deutsche Bank and Deutsche Boerse), the national airline Lufthansa and two industrial companies, one of them related to consumers (Adidas).

Investment opportunities in Germany are still high although economic figures tend to be negative. T-Advisor has a steady model portfolio with German stocks rebalanced every second month. The portfolio had never losses. These are the main data from it:

It is possible that Germany experiences again hard times, but investors have to look into the market with high-quality tools to find the best opportunities. T-Advisor monitors deeply the German market to provide this service.